Tableof Contents

 

## ** **

 

## **UNITED STATES**

## **SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

## **FORM 10-Q**

## ** **

| **x** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**For thequarterly period ended September 30, 2009**

 

**OR**

 
| **o** | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|------------|----------------------------------------------------------------------------------------------------------|

 

**For thetransition period from             to            **

 

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### **Commission File Number 000-23223**

 

**CURAGEN CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                    | ** ** | **06-1331400**       |
|-------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of                |       | (I.R.S. Employer     |
| incorporation or  organization)                 |       | Identification  No.) |
|                                            |       |                 |
| **322 East Main Street, Branford, Connecticut** | ** ** | **06405**            |
| (Address of principal executive offices)        |       | (Zip Code)           |

 

Registrant’s telephone number, including area code:**(203)481-1104**

 

Indicate by check mark whether the registrant:  (1)  has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2)  has been subjectto such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether theregistrant has submitted electronically and posted on its corporate Website, ifany, every Interactive Data File required to be submitted and posted pursuantto Rule 405 of Regulation S-T (§229.405 of this chapter) during thepreceeding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).  YesoNo o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large Accelerated Filer  o           |   | Accelerated Filer  x              |
|------------------------------------------------|--------|----------------------------------------|
|                                           |   |                                   |
| Non-Accelerated  Filer o                       |   | Smaller Reporting Company  o |
| (Do  not check if a smaller reporting company) |   |                                   |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o No x

 

The number ofshares outstanding of the registrant’s common stock as of November 2,2009 was 1,000.

(All shares areissued to Celldex Therapeutics, Inc.)

 

 

 

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**CURAGENCORPORATION**

##### **FORM 10-Q**

##### **INDEX**

##### ** **

| ** **                            | **Page**                                                                                                             |
|---------------------------------------|----------------------------------------------------------------------------------------------------------------------|
| *PART I.**Financial Information* | ** **                                                                                                           |
|                                  |                                                                                                                 |   |
| Item 1.                               | Financial Statements                                                                                                 |   |
|                                  |                                                                                                                 |   |
|                                  | Condensed  Balance Sheets as of September 30, 2009 and December 31, 2008  (unaudited)                      | 3 |
|                                  |                                                                                                                 |   |
|                                  | Condensed Statements of Operations for the Three and  Nine Months Ended September 30, 2009 and 2008 (unaudited) | 4 |
|                                  |                                                                                                                 |   |
|                                  | Condensed  Statements of Cash Flows for  the Nine Months Ended September 30, 2009****and  2008****(unaudited)   | 5 |
|                                  |                                                                                                                 |   |
|                                  | Notes to Condensed Financial Statements (unaudited)                                                                  | 6 |
|                                  |                                                                                                                 |   |
| Item 2.                               | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                          | 13 |
|                                  |                                                                                                                 |   |
| Item 3.                               | Quantitative  and Qualitative Disclosures About Market Risk                                                          | 19 |
|                                  |                                                                                                                 |   |
| Item 4.                               | Controls and  Procedures                                                                                             | 19 |
|                                  |                                                                                                                 |   |
| *PART II.  Other Information*    |                                                                                                                 |
|                                  |                                                                                                                 |   |
| Item 1.                               | Legal Proceedings                                                                                                    | 20 |
|                                  |                                                                                                                 |   |
| Item 1A.                              | Risk Factors                                                                                                         | 20 |
|                                  |                                                                                                                 |   |
| Item 4.                               | Submission  of Matters to a Vote of Security Holders                                                                 | 21 |
|                                  |                                                                                                                 |   |
| Item 6.                               | Exhibits                                                                                                             | 21 |
|                                  |                                                                                                                 |   |
| *Signatures*                          |                                                                                                                 | 22 |
|                                  |                                                                                                                 |   |
| *Exhibit Index*                  |                                                                                                                 | 23 |

 

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**CURAGENCORPORATION**

**CONDENSED BALANCE SHEETS**

**(inthousands, except par value and share data)**

**(unaudited)**

 
| ** **                                                                                                                                           | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                           | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| **ASSETS**                                                                                                                                           |       |                   |       |                  |       |
| Current assets:                                                                                                                                      |       |                   |       |                  |       |
| Cash and cash equivalents                                                                                                                            |       | $                      | 51,654     |                  | $          | 19,103 |   |
| Short-term investments                                                                                                                               |       | 6,005                  |       | 30,332                |       |
| Marketable securities                                                                                                                                |       | 12,633                 |       | 38,229                |       |
| Cash and investments                                                                                                                                 |       | 70,292                 |       | 87,664                |       |
| Other current assets                                                                                                                                 |       | 818                    |       | 494                   |       |
| Total current assets                                                                                                                                 |       | 71,110                 |       | 88,158                |       |
|                                                                                                                                                 |       |                   |       |                  |       |
| Property and equipment, net                                                                                                                          |       | 41                     |       | 102                   |       |
| Other assets, net                                                                                                                                    |       | 97                     |       | 286                   |       |
| Total assets                                                                                                                                         |       | $                      | 71,248     |                  | $          | 88,546 |   |
|                                                                                                                                                 |       |                   |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                       |       |                   |       |                  |       |
| Current liabilities:                                                                                                                                 |       |                   |       |                  |       |
| Accounts payable                                                                                                                                     |       | $                      | 63         |                  | $          | 239 |   |
| Accrued expenses                                                                                                                                     |       | 2,899                  |       | 1,610                 |       |
| Accrued payroll and related items                                                                                                                    |       | 531                    |       | 660                   |       |
| Interest payable                                                                                                                                     |       | 84                     |       | 253                   |       |
| Other current liabilities                                                                                                                            |       | 139                    |       | 1,352                 |       |
| Total current liabilities                                                                                                                            |       | 3,716                  |       | 4,114                 |       |
|                                                                                                                                                 |       |                   |       |                  |       |
| Convertible subordinated debt                                                                                                                        |       | 12,503                 |       | 18,967                |       |
|                                                                                                                                                 |       |                   |       |                  |       |
| Commitments and contingencies                                                                                                                        |       |                   |       |                  |       |
|                                                                                                                                                 |       |                   |       |                  |       |
| Stockholders’ equity:                                                                                                                           |       |                   |       |                  |       |
| Common Stock; $.01 par value, issued and  outstanding 57,403,448 shares at September 30, 2009, and 57,118,186  shares at December 31, 2008 |       | 574                    |       | 571                   |       |
| Additional paid-in capital                                                                                                                           |       | 528,489                |       | 527,294               |       |
| Accumulated other comprehensive income                                                                                                               |       | 341                    |       | 393                   |       |
| Accumulated deficit                                                                                                                                  |       | (474,375               | )          | (462,793              | )          |
| Total stockholders’ equity                                                                                                                      |       | 55,029                 |       | 65,465                |       |
| Total liabilities and stockholders’ equity                                                                                                      |       | $                      | 71,248     |                  | $          | 88,546 |   |

 

Seeaccompanying notes to condensed financial statements

 

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**CURAGEN CORPORATION**

**CONDENSEDSTATEMENTS OF OPERATIONS**

**(in thousands, except per share data)**

**(unaudited)**

 
| ** **                                                           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|----------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                           | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                           | ** ** | **2009**               | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| Collaboration revenue                                                |       | $                      | —     |                   | $          | — |   | $ | — |   | $ | 1,174 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Operating expenses:                                                  |       |                   |       |                   |       |   |   |   |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Research and development                                             |       | 2,238                  |       | 3,453                  |       | 5,748 |   | 12,459 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| General and administrative                                           |       | 3,332                  |       | 1,076                  |       | 8,149 |   | 4,235 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Total operating expenses                                             |       | 5,570                  |       | 4,529                  |       | 13,897 |   | 16,694 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Gain on sale of intangible asset                                     |       | —                 |       | —                 |       | — |   | 36,397 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| (Loss) income from operations                                        |       | (5,570                 | )          | (4,529                 | )          | (13,897 | ) | 20,877 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Interest income, net                                                 |       | 135                    |       | 743                    |       | 813 |   | 2,642 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Interest expense                                                     |       | (198                   | )          | (226                   | )          | (532 | ) | (1,474 | ) |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Realized (loss) gain on sale of available-for-sale  investments, net |       | (1                     | )          | (2                     | )          | 83 |   | (171 | ) |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Gain on extinguishment of debt                                       |       | 233                    |       | —                 |       | 1,194 |   | 6,991 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| (Loss) income before income taxes                                    |       | (5,401                 | )          | (4,014                 | )          | (12,339 | ) | 28,865 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Income tax benefit (provision)                                       |       | 16                     |       | 32                     |       | 757 |   | (362 | ) |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Net (loss) income                                                    |       | $                      | (5,385     | )                      | $          | (3,982 | ) | $ | (11,582 | ) | $ | 28,503 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Basic (loss) income per share                                        |       | $                      | (0.09      | )                      | $          | (0.07 | ) | $ | (0.20 | ) | $ | 0.49 |   |
| Diluted (loss) income per share                                      |       | $                      | (0.09      | )                      | $          | (0.07 | ) | $ | (0.20 | ) | $ | 0.48 |   |
|                                                                 |       |                   |       |                   |       |   |   |   |   |
| Weighted average number of shares used in  computing:                |       |                   |       |                   |       |   |   |   |   |
| Basic (loss) income per share                                        |       | 57,142                 |       | 56,822                 |       | 57,062 |   | 56,693 |   |
| Diluted (loss) income per share                                      |       | 57,142                 |       | 56,822                 |       | 57,062 |   | 61,222 |   |

 

See accompanying notes to condensed financial statements

 

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**CURAGEN CORPORATION**

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(in thousands)**

**(unaudited)**

 
| ** **                                                                            | ** ** | **Nine Months Ended**  | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                            | ** ** | **September 30,** | ** ** |
| ** **                                                                            | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Cash flows from operating activities:                                                 |       |                   |       |   |   |
| Net (loss) income                                                                     |       | $                      | (11,582    | ) | $ | 28,503 |   |
| Adjustments to reconcile net (loss) income to net  cash used in operating activities: |       |                   |       |   |   |
| Deferred revenue                                                                      |       | —                 |       | (1,174 | ) |
| Depreciation and amortization                                                         |       | 108                    |       | 400 |   |
| Stock-based compensation                                                              |       | 1,039                  |       | 1,529 |   |
| Stock-based 401(k) plan employer match                                           |       | 16                     |       | 147 |   |
| Non-cash interest income                                                              |       | (74                    | )          | 25 |   |
| Non-cash interest income - Restricted cash                                            |       | —                 |       | (144 | ) |
| Realized (gain) loss on available for sale  investments                               |       | (83                    | )          | 171 |   |
| Gain on extinguishment of debt                                                        |       | (1,194                 | )          | (6,991 | ) |
| Gain on sale of intangible asset                                                      |       | —                 |       | (36,397 | ) |
| Changes in assets and liabilities:                                                    |       |                   |       |   |   |
| Accrued interest receivable                                                           |       | 279                    |       | 220 |   |
| Other current assets                                                                  |       | (324                   | )          | 1,981 |   |
| Other assets                                                                          |       | 75                     |       | (12 | ) |
| Accounts payable                                                                      |       | (176                   | )          | 574 |   |
| Accrued expenses                                                                      |       | 1,288                  |       | (531 | ) |
| Accrued payroll and related items                                                     |       | (129                   | )          | (786 | ) |
| Interest payable                                                                      |       | (170                   | )          | (985 | ) |
| Other current liabilities                                                             |       | (1,210                 | )          | (2,851 | ) |
| Net cash used in operating activities                                                 |       | (12,137                | )          | (16,321 | ) |
|                                                                                  |       |                   |       |   |   |
| Cash flows from investing activities:                                                 |       |                   |       |   |   |
| Acquisitions of property and equipment                                                |       | —                 |       | (3 | ) |
| Proceeds from sale of fixed assets                                                    |       | 3                      |       | 95 |   |
| Purchases of short-term investments                                                   |       | —                 |       | (42,199 | ) |
| Proceeds from sales of short-term investments                                         |       | 3,250                  |       | 9,360 |   |
| Proceeds from maturities of short-term investments                                    |       | 21,000                 |       | 11,450 |   |
| Purchases of marketable securities                                                    |       | (2,030                 | )          | (4,021 | ) |
| Proceeds from sales of marketable securities                                          |       | 15,021                 |       | 17,518 |   |
| Proceeds from maturities of marketable securities                                     |       | 12,505                 |       | 18,800 |   |
| Net proceeds from sale of intangible asset                                            |       | —                 |       | 24,583 |   |
| Net cash provided by investing activities                                             |       | 49,749                 |       | 35,583 |   |
|                                                                                  |       |                   |       |   |   |
| Cash flows from financing activities:                                                 |       |                   |       |   |   |
| Proceeds from exercise of stock options                                               |       | 144                    |       | — |   |
| Payment for extinguishment of debt                                                    |       | (5,205                 | )          | (43,247 | ) |
| Net cash used in financing activities                                                 |       | (5,061                 | )          | (43,247 | ) |
|                                                                                  |       |                   |       |   |   |
| Cash flows from discontinued operations:                                              |       |                   |       |   |   |
| Net investing cash flows provided by discontinued  operations                         |       | —                 |       | 14,676 |   |
| Net cash provided by discontinued operations                                          |       | —                 |       | 14,676 |   |
|                                                                                  |       |                   |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                 |       | 32,551                 |       | (9,309 | ) |
| Cash and cash equivalents, beginning of period                                        |       | 19,103                 |       | 16,730 |   |
| Cash and cash equivalents, end of period                                              |       | $                      | 51,654     |   | $ | 7,421 |   |
| * *                                                                              | * *   | * *               | * *   | * * | * * |
| Supplemental cash flow information:                                                   |       |                   |       |   |   |
| Interest paid                                                                         |       | $                      | 651        |   | $ | 2,275 |   |
| Income tax benefit payments received                                                  |       | $                      | 312        |   | $ | 247 |   |
|                                                                                  |       |                   |       |   |   |
| Supplemental schedule of noncash investing  transactions:                             |       |                   |       |   |   |
| Fair value of marketable security acquired                                            |       | $                      | —     |   | $ | 11,814 |   |

 

Seeaccompanying notes to condensed financial statements

 

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**CURAGENCORPORATION**

##### **NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 

**1.****             ****Basis of Presentation andBusiness Overview**

 

The accompanying unaudited condensed financialstatements of CuraGen Corporation (the “Company” or “CuraGen”) have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States of America for complete financial statements.  In the opinion of our management, theaccompanying unaudited condensed financial statements include all adjustments,consisting of normal recurring accruals, necessary to present fairly ourfinancial position, results of operations and cash flows.  Interim results are not necessarily indicativeof the results that may be expected for the entire year.

 

CuraGen has evaluated all subsequent events through November 6,2009, the date of filing of this Form 10-Q.

 

Theaccompanying unaudited condensed financial statements should be read in conjunctionwith the audited financial statements and notes thereto included in our AnnualReport on Form 10-K for the year ended December 31, 2008.

 

As more fully discussed in Note 8, on October 1,2009, the Company merged into a wholly-owned subsidiary of Celldex Therapeutics, Inc.(“Celldex”), a public company, (the “Celldex Merger”) in accordance with adefinitive merger agreement dated May 28, 2009 (the “Celldex MergerAgreement”) and as approved at a special meeting of the Company’s shareholderson September 30, 2009.

 

**2.****             ****Stock-Based Compensation**

 

Duringthe three and nine months ended September 30, 2009 and 2008, the Companyrecognized compensation expense in total operating expenses on the condensedstatements of operations with respect to employee stock options and restrictedstock grants as follows:

 
| ** **                                                    | ** ** | **Three  Months Ended********September 30,** | ** ** | **Nine  Months Ended********September 30,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                    | ** ** | **2009**                                          | ** ** | **2008**                                         | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                    | ** ** | **(In  thousands)**                               | ** ** |
| Compensation expense with respect to employee stock  options  |       | $                                                 | 351        |                                             | $          | 201 |   | $ | 812 |   | $ | 755 |   |
| Compensation expense with respect to restricted  stock grants |       | $                                                 | 22         |                                             | $          | 226 |   | $ | 226 |   | $ | 781 |   |

 

Therewere no stock option or restricted stock grants during the three months ended September 30,2009 and 2008.

 

Theapproximate weighted-average grant date fair values using the Black-Scholesoption valuation model of all stock options granted during the nine monthsended September 30, 2009 and 2008 were as follows:

 
|   |   | **Nine  Months Ended********September 30,** |   |     |
|--------|--------|--------------------------------------------------|--------|----------|
|   |   | **2009**                                         |   | **2008** |   |   |
|   |   | $                                                | 0.44   |     | $ | 0.47 |   |   |
|        |        |                                                  |        |          |  |  |  |  |

 

The2007 Stock Incentive Plan (“2007 Stock Plan”) was approved by the Company’sstockholders as of May 2, 2007.  The2007 Stock Plan provides for the issuance of stock options and stock grants toemployees, directors and consultants of CuraGen.  A total of 3,000,000 shares of common stockwere originally reserved for issuance under the 2007 Stock Plan.  In May 2008, upon approval of theCompany’s stockholders, the amount reserved under the 2007 stock plan wasincreased to 6,000,000.

 

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Asummary of the stock option activity under the 2007 Stock Plan, as of September 30,2009, and changes during the three months ended September 30, 2009, are asfollows:

 
| ** **                          | ** ** | **Number********of  Options** | ** ** | **Weighted********Average********Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual Life********(in  years)** | ** ** | **Aggregate  Intrinsic Value********(In  thousands)** | ** ** |
|-------------------------------------|------------|-------------------------------|------------|----------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Outstanding July 1, 2009       |       | 3,633,632                     |       | $                                                  | 0.86       |                                                                  | 8.94       |                                                  | $          | 2,254 |   |
| Exercised                           |       | (198,217                      | )          | 0.69                                               |       | —                                                                |       | 132                                                   |       |
| Canceled or lapsed                  |       | (35,157                       | )          | 0.68                                               |       | —                                                                |       | 28                                                    |       |
| Outstanding September 30, 2009 |       | 3,400,258                     |       | 0.87                                               |       | 8.71                                                                  |       | 2,176                                                 |       |
|                                |       |                          |       |                                               |       |                                                                  |       |                                                  |       |
| Exercisable September 30, 2009 |       | 953,421                       |       | 1.12                                               |       | 8.20                                                                  |       | 452                                                   |       |
|                                     |            |                               |            |                                                    |            |                                                                       |            |                                                       |            |  |  |

 

Thetotal intrinsic value of stock options exercised under the 2007 Stock Planduring the three months ended September 30, 2009 was $0.1 million.  There were no options exercised under the2007 Stock Plan during the three months ended September 30, 2008.

 

As of September 30,2009 there was $1.0 million of total unrecognized compensation expense relatedto unvested stock option grants under the 2007 Stock Plan.  As a result of the Celldex Merger, on October1, 2009, 2,414,007 stock options under the 2007 Stock Plan vested in accordancewith the terms of the stock option agreements and employment agreements.  All outstanding stock options under the 2007Stock Plan were assumed by Celldex effective October 1, 2009, as discussedin Note 8 below.

 

Asummary of the stock option activity under the 1997 Employee, Director andConsultant Stock Plan (“1997 Stock Plan”) as of September 30, 2009, andchanges during the three months ended September 30, 2009, are as follows:

 
| ** **                          | ** ** | **Number********of  Options** | ** ** | **Weighted********Average********Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual Life********(in  years)** | ** ** | **Aggregate  Intrinsic Value** |   |
|-------------------------------------|------------|-------------------------------|------------|----------------------------------------------------|------------|-----------------------------------------------------------------------|------------|--------------------------------|--------|
| Outstanding July 1, 2009       |       | 1,455,429                     |       | $                                                  | 5.77       |                                                                  | 5.10       |                           | — |   |
| Canceled or lapsed                  |       | (10,152                       | )          | 3.59                                               |       | —                                                                |       | —                         |   |
| Outstanding September 30, 2009 |       | 1,445,277                     |       | 5.78                                               |       | 0.003                                                                 |       | —                         |   |
|                                |       |                          |       |                                               |       |                                                                  |       |                           |   |
| Exercisable September 30, 2009 |       | 1,445,277                     |       | 5.78                                               |       | 0.003                                                                 |       | —                         |   |
|                                     |            |                               |            |                                                    |            |                                                                       |            |                                |        |  |

 

Therewere no options exercised under the 1997 Stock Plan during the three monthsended September 30, 2009 and 2008.

 

In September 2009,in accordance with the terms of the Celldex Merger Agreement and as providedfor under the 1997 Stock Plan, all unvested options under the 1997 Stock Planimmediately vested and became fully exercisable for a specified period of timeprior to the consummation of the Celldex Merger, and were terminated at closingif they were not exercised during that period. Accordingly, during the third quarter of 2009, the Company recorded a$0.2 million acceleration charge related to total unrecognized compensationexpense related to previously unvested stock option grants under the 1997 StockPlan as of September 30, 2009.

 

Therewas no restricted stock activity under the 2007 Stock Plan during the threemonths ended September 30, 2009.  Asof September 30, 2009, there were 37,500 restricted shares outstandingunder the 2007 Stock Plan.  There were norestricted shares vested under the 2007 Stock Plan during the three monthsended September 30, 2009 and 2008.

 

Asummary of all restricted stock activity under the 1997 Stock Plan as of September 30,2009, and changes during the three months ended September 30, 2009, are asfollows:

 
| ** **                          | ** ** | **Number********of Shares********of  Restricted Stock** | ** ** | **Weighted********Average********Grant  Date Fair Value** | ** ** |
|-------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Outstanding July 1, 2009       |       | 75,000                                                  |       | 2.95                                                      |       |
| Restrictions lapsed                 |       | (75,000                                                 | )          | 2.95                                                      |       |
| Outstanding September 30, 2009 |       | —                                                  |       | —                                                    |       |

 

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**3.****             ****(Loss) Income Per Share**

 

On January 1,2009, the Company adopted a new U.S. GAAP accounting standard which impactedthe determination and reporting of earnings per share by requiring theinclusion of restricted stock, which has the right to share in dividends, ifdeclared, equally with common shareholders as participating securities. Duringperiods of net income, participating securities are allocated a proportionalshare of net income determined by dividing total weighted average participatingsecurities by the sum of total weighted average common shares and participatingsecurities (“the two-class method”). During periods of net loss, no effect isgiven to the participating securities because they do not share in the lossesof the Company. Including these shares in the Company’s earnings per sharecalculation during periods of net income has the effect of diluting both basicand diluted earnings per share. The Company’s prior period basic and dilutedshares outstanding, as well as per share amounts presented below, have beenadjusted retroactively.

 

Forthe three and nine months ended September 30, 2008, potentially dilutivesecurities representing 1,442,552 shares of common stock related to unvestedstock options were excluded from the computation of diluted earnings per sharebecause their effect would have been antidilutive.  Due to the net loss for the period ended September 30,2009, anti-dilutive potential common shares, consisting of convertiblesubordinated debt and outstanding stock options, were 6,136,380 as of September 30,2009.

 
| ** **                                           | ** ** | **Three  Months  Ended**                  | ** ** | **Three  Months  Ended** | ** ** | **Nine  Months  Ended** | ** ** | **Nine  Months  Ended** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|--------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                           | ** ** | **September 30,  2009**                   | ** ** | **September 30,  2008**  | ** ** | **September 30,  2009** | ** ** | **September 30,  2008** | ** ** |
| ** **                                           | ** ** | **(In thousands, except per share data)** | ** ** |
| ***Basic:***                                         |       |                                      |       |                     |       |                    |       |                    |       |
| Numerator:                                           |       |                                      |       |                     |       |                    |       |                    |       |
| Net  (loss) income                                   |       | $                                         | (5,385     | )                        | $          | (3,982                  | )          | $                       | (11,582    | ) | $ | 28,503 |   |
| Net  income associated with participating securities |       | —                                    |       | —                   |       | —                  |       | 451                     |       |
| Basic  net (loss) income                             |       | $                                         | (5,385     | )                        | $          | (3,982                  | )          | $                       | (11,582    | ) | $ | 28,052 |   |
|                                                 |       |                                      |       |                     |       |                    |       |                    |       |
| Denominator:                                         |       |                                      |       |                     |       |                    |       |                    |       |
| Weighted  average common shares                      |       | 57,141,644                                |       | 56,821,826               |       | 57,061,727              |       | 56,693,176              |       |
| Net  (loss) income per share - basic                 |       | $                                         | (0.09      | )                        | $          | (0.07                   | )          | $                       | (0.20      | ) | $ | 0.49 |   |
|                                                 |       |                                      |       |                     |       |                    |       |                    |       |
| ***Diluted:***                                       |       |                                      |       |                     |       |                    |       |                    |       |
| Numerator:                                           |       |                                      |       |                     |       |                    |       |                    |       |
| Net  (loss) income                                   |       | $                                         | (5,385     | )                        | $          | (3,982                  | )          | $                       | (11,582    | ) | $ | 28,503 |   |
| Interest  expense                                    |       | —                                    |       | —                   |       | —                  |       | 1,434                   |       |
| Net  income associated with participating securities |       | —                                    |       | —                   |       | —                  |       | 444                     |       |
| Net  (loss) income                                   |       | $                                         | (5,385     | )                        | $          | (3,982                  | )          | $                       | (11,582    | ) | $ | 29,493 |   |
|                                                 |       |                                      |       |                     |       |                    |       |                    |       |
| Denominator:                                         |       |                                      |       |                     |       |                    |       |                    |       |
| Weighted  average common shares                      |       | 57,141,644                                |       | 56,821,826               |       | 57,061,727              |       | 56,693,176              |       |
| Weighted  average effect of dilutive securities:     |       |                                      |       |                     |       |                    |       |                    |       |
| Convertible  subordinated notes                      |       | —                                    |       | —                   |       | —                  |       | 4,528,511               |       |
| Diluted  weighted average common shares              |       | 57,141,644                                |       | 56,821,826               |       | 57,061,727              |       | 61,221,687              |       |
|                                                 |       |                                      |       |                     |       |                    |       |                    |       |
| Net  (loss) income per share - diluted               |       | $                                         | (0.09      | )                        | $          | (0.07                   | )          | $                       | (0.20      | ) | $ | 0.48 |   |

 

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**4.****             ****Investments**

 

Thefollowing tables show the amortized cost, gross unrealized gains and losses andestimated fair value of available-for-sale securities as of December 31,2008 and September 30, 2009 based on published closing prices by majorsecurity type (in thousands):

 
| ** **                                   | ** ** | **December 31, 2008** | ** ** |
|----------------------------------------------|------------|----------------------------|------------|
| ** **                                   | ** ** | **Amortized  Cost**        | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Estimated  Fair  Value** | ** ** |
| Agency bonds                                 |       | $                          | 26,951     |   | $ | 239 |   | $ | — |   | $ | 27,190 |   |
| Agency mortgage backed securities            |       | 8,252                      |       | 163 |   | — |   | 8,415 |   |
| Corporate and municipal bonds                |       | 11,921                     |       | 81 |   | 166 |   | 11,836 |   |
| US Treasury notes                            |       | 9,076                      |       | 71 |   | — |   | 9,147 |   |
| Commercial paper and certificates of deposit |       | 4,007                      |       | 5 |   | — |   | 4,012 |   |
| Asset backed securities                      |       | 7,961                      |       | — |   | — |   | 7,961 |   |
| Total                                        |       | $                          | 68,168     |   | $ | 559 |   | $ | 166 |   | $ | 68,561 |   |

 
| ** **                        | ** ** | **September 30, 2009** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|
| ** **                        | ** ** | **Amortized  Cost**         | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Estimated  Fair  Value** | ** ** |
|                              |       |                        |       |   |   |   |   |   |   |
| Agency bonds                      |       | $                           | 10,048     |   | $ | 45 |   | $ | — |   | $ | 10,093 |   |
| Agency mortgage backed securities |       | 6,221                       |       | 285 |   | — |   | 6,506 |   |
| Corporate bond                    |       | 2,028                       |       | 11 |   | — |   | 2,039 |   |
| Total                             |       | $                           | 18,297     |   | $ | 341 |   | $ | — |   | $ | 18,638 |   |

 

The accumulated balance of other comprehensive incomeis disclosed as a separate component of stockholders’ equity and consists ofunrealized gains and losses on short-term investments and marketablesecurities.  Total comprehensive loss isas follows:

 
| ** **                                                                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                    | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                    | ** ** | **2009**               | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net (loss) income                                                             |       | $                      | (5,385     | )                      | $          | (3,982 | ) | $ | (11,582 | ) | $ | 28,503 |   |
| Other comprehensive loss:                                                     |       |                   |       |                   |       |   |   |   |   |
| Unrealized (losses) gains on securities:                                      |       |                   |       |                   |       |   |   |   |   |
| Unrealized (losses) gains arising during period                               |       | 36                     |       | (369                   | )          | (135 | ) | (26 | ) |
| Reclassification adjustment for (losses) gains  included in net (loss) income |       | (1                     | )          | (2                     | )          | 83 |   | (172 | ) |
| Net unrealized (loss) gain on securities                                      |       | 35                     |       | (371                   | )          | (52 | ) | (198 | ) |
| Total comprehensive (loss) income                                             |       | $                      | (5,350     | )                      | $          | (4,353 | ) | $ | (11,634 | ) | $ | 28,305 |   |

 

The Company reviews its investment portfolio ona regular basis to determine if there is an impairment that is other than temporary.As of September 30, 2009 there were no securities with unrealized losses.

 

Allof the securities in the Company’s investment portfolio are priced by theCompany’s investment manager.  On aquarterly basis, the Company obtains a second price for each security tocompare to the price obtained from the Company’s investment manager.  As of September 30,2009, there were no material variances in the prices obtained from these twosources and as such the Company has used the pricing provided by the Company’sinvestment manager.

 

OnJanuary 1, 2008, the Company adopted a new U.S. GAAP accounting standardthat defines fair value, provides a consistent framework for measuring fairvalue and expands fair value financial statement disclosure 

 

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requirements. Thevaluation techniques are based on observable and unobservable inputs.Observable inputs reflect readily obtainable data from independent sources,while unobservable inputs reflect our market assumptions. The fair valuehierarchy is as follows:

 

*Level 1 Inputs*– Quoted prices for identical instruments in active markets.

 

*Level 2 Inputs*– Quoted prices for similar instruments in active markets; quoted prices foridentical or similar instruments in markets that are not active; andmodel-derived valuations whose inputs are observable or whose significant valuedrivers are observable.

 

*Level 3 Inputs*– Instruments with primarily unobservable value drivers.

 

The following table represents the fair valuehierarchy for those financial assets measured at fair value on a recurringbasis as of September 30, 2009.

 

**Fair Value Measurements on aRecurring Basis as of September 30, 2009**

 
| **Assets**             | ** ** | **Level I** | ** ** | **Level II** | ** ** | **Level III** | ** ** | **Total**  | ** ** |
|------------------------|------------|-------------|------------|--------------|------------|--------------------|------------|------------|------------|
| ** **             | ** ** | ** **  | ** ** | ** **   | ** ** | ** **         | ** ** | ** ** | ** ** |
| Cash equivalents       |       | $           | 46,099     |         | $          | —             |       | $          | —     |   | $ | 46,099 |   |
| Short-term investments |       | —      |       | 6,005        |       | —             |       | 6,005      |       |
| Marketable securities  |       | —      |       | 12,633       |       | —             |       | 12,633     |       |
| Total Investments      |       | $           | 46,099     |         | $          | 18,638             |       | $          | —     |   | $ | 64,737 |   |

 

LevelI securities in the Company’s portfolio consist primarily of Money Marketaccounts. Level II securities in the Company’s portfolio primarily consist ofFederal government agency sponsored securities.

 

**5.****             ****Extinguishment of Debt**

 

DuringFebruary 2009, the Company repurchased $4.8 million of its 4% convertiblesubordinated debentures due February 2011, for total consideration of $3.8million, plus accrued interest of $0.1 million at the date of repurchase. As aresult of the transaction, in the first quarter of 2009 the Company recorded again of $1.0 million which is net of the write-off of the ratable portion ofunamortized deferred financing costs relating to the repurchased debt.

 

InJuly 2009, the Company repurchased $1.6 million of its 4% convertiblesubordinated debentures due February 2011, for total consideration of $1.4million, plus accrued interest of $0.02 million at the date of repurchase. As aresult of the transactions, in the third quarter of 2009 the Company recorded again of $0.2 million which is net of the write-off of the ratable portion ofunamortized deferred financing costs relating to the repurchased debt.

 

As of September 30,2009, the market value of the Company’s$12.5 million 4% convertible subordinated notes due 2011, based on quoted market prices, was approximately $11.5million.

 

**6.****             ****Recently Enacted Pronouncements**

 

On January 1, 2009, the Company adopted thefollowing new U.S. GAAP accounting standards all of which did not have amaterial impact on the Company’s financial condition or results of operations:

 

·                  Measure non-financial assets and liabilities that are not on arecurring basis recognized or disclosed at fair value in the financialstatements; and

 

·                  Disclose the fair values of financial instruments in interim and annualfinancial statements. Prior to the issuance of the new accounting standard,disclosures about fair values of financial instruments were only required to bedisclosed annually.

 

On April 1, 2009, the Company adopted thefollowing new U.S. GAAP accounting standards all of which did not have amaterial impact on the Company’s financial condition or results of operations:

 

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·                  Estimate fair value when the volume and level of activity forthe asset or liability have significantly decreased and identify circumstancesthat indicate a transaction is not orderly; and

 

·                  Improve the presentation and disclosure of other-than-temporaryimpairments on debt and equity securities in the financial statements.

 

On July 1, 2009, the Company adopted theFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification(the “Codification”) which is the source of authoritative, nongovernmentalGAAP, except for rules and interpretive releases of the SEC, which aresources of authoritative GAAP for SEC registrants. All other nongrandfathered,non-SEC accounting literature not included in the Codification will becomenonauthoritative. As the Codification was not intended to change or alterexisting U.S. GAAP, the Codification did not have any impact on the Company’sfinancial statements or results of operations.

 

In August 2009, the FASB issued a new U.S. GAAPaccounting standard that provides clarification that in circumstances in whicha quoted price in an active market for the identical liability is notavailable, a reporting entity is required to measure fair value using one ormore of the following methods: 1) a valuation technique that usesa) the quoted price of the identical liability when traded as an asset orb) quoted prices for similar liabilities or similar liabilities whentraded as assets and/or 2) a valuation technique that is consistent withthe principles of an income approach or market approach. The standard alsoclarifies that when estimating the fair value of a liability, a reportingentity is not required to adjust to include inputs relating to the existence oftransfer restrictions on that liability. The Company is required to adopt thisstandard on October 1, 2009 and does not expect the adoption will have amaterial impact on its financial position or results of operations; however,this standard may impact the Company in future periods.

 

**In October 2009, the FASB issued a new U.S. GAAPaccounting standard which amends existing revenue recognition accountingguidance to provide accounting principles and application guidance on whethermultiple deliverables exist, how the arrangement should be separated, and theconsideration allocated. This guidance eliminates the requirement to establishthe fair value of undelivered products and services and instead provides forseparate revenue recognition based upon management’s estimate of the sellingprice for an undelivered item when there is no other means to determine thefair value of that undelivered item. The existing guidance previously requiredthat the fair value of the undelivered item be the price of the item eithersold in a separate transaction between unrelated third parties or the pricecharged for each item when the item is sold separately by the vendor. This wasdifficult to determine when the product was not individually sold because ofits unique features. Under the existing guidance if the fair value of all ofthe elements in the arrangement was not determinable, then revenue was deferreduntil all of the items were delivered or fair value was determined. The newstandard is effective prospectively for revenue arrangements entered into ormaterially modified in fiscal years beginning on or after June 15,2010.  The Company is currentlyevaluating the potential impact of this standard on its financial position andresults of operations.**

** **

**7.****             ****SeattleGenetics, Inc. Collaboration Agreement**

 

InJune 2004, CuraGen and Seattle Genetics, Inc. (“Seattle Genetics”)entered into a collaboration agreement to license Seattle Genetics’ proprietaryantibody-drug conjugate (“ADC”) technology for use with the Company’sproprietary antibodies for the potential treatment of cancer. The Company paidan upfront fee of $2.0 million for access to the ADC technology for use in oneof its proprietary antibody programs. In February 2005, the Company alsoexercised its option to access Seattle Genetics’ ADC technology for use with asecond antibody program in exchange for a $1.0 million payment. In June 2006,the Company paid a milestone payment for the enrollment of the first patient inthe first Phase I clinical trial of CR011-vcMMAE for the treatment ofmetastatic melanoma. In April 2008, the Company paid a milestone paymentfor the initiation of a Phase II clinical trial of CR011-vcMMAE. Milestonepayments under this collaboration agreement are payable upon the initiation ofeach phase of clinical trials and upon marketing approval.  Under the terms of the agreement, totalmilestone payments from the initiation of clinical trials through marketingapproval will be $14.0 million for each antibody-drug conjugate.  All milestones were fully expensed at thetime of the achievement of the milestone, pursuant to CuraGen’s accountingpolicy for such fees.

 

**8.****             ****Celldex Merger**

 

In connection with the Celldex Merger, effective October 1,2009, Celldex (i) issued 15,722,713 shares of Celldex common stock, or0.2739 shares, in exchange for each share of outstanding CuraGen common stock,plus 

 

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cash in lieu of fractional shares (the “CelldexExchange Ratio”), (ii) assumed all of the CuraGen stock optionsoutstanding under the CuraGen 2007 Stock Plan, and (iii) assumed CuraGen’s$12.5 million remaining obligation for its 4% convertible subordinated debt duein February 2011 (the “CuraGen Debt”). The CuraGen 2007 Options convert into shares of the Celldex’s commonstock after applying the Celldex Exchange Ratio.

 

In connection with the consummation of the CelldexMerger, effective October 1, 2009, Celldex, CuraGen, and The Bank of New YorkMellon (formerly the Bank of New York) (the “Trustee”) amended the CuraGen Debtto provide that the CuraGen Debt shall be convertible into shares of Celldexcommon stock at the rate of 28.27823 shares of Celldex common stock per $1,000principal amount of notes, or $35.36 per share.

 

*Memorandumof Understanding*

 

Followingthe announcement of the proposed acquisition by Celldex of CuraGen, a putativeclass action complaint, *Margaret Capps v.Timothy Shannon, et al.*, was filed in the Connecticut SuperiorCourt, Judicial District of New Haven, on June 9, 2009. A second putativeclass action complaint, *Cheryl Smith v.CuraGen Corporation, et al.*, was filed in the Court of Chancery ofthe State of Delaware on June 15, 2009. Both lawsuits purport to have beenbrought on behalf of all public stockholders of CuraGen, and name CuraGen, allof its former directors, Celldex, and Cottrell Merger Sub as defendants. Thecomplaints alleged, among other things, that the merger consideration paid toCuraGen stockholders in the merger is unfair and undervalues CuraGen. Inaddition, the complaints alleged that CuraGen’s former directors violated theirfiduciary duties by, among other things, failing to maximize stockholder valueand failing to engage in a fair sale process. The Plaintiffs in the two actionsalso sought to add claims that CuraGen’s former directors breached theirfiduciary duty of disclosure by making purportedly misleading and incompletedisclosures in the preliminary proxy statement concerning the merger. Thecomplaints also alleged that CuraGen and Celldex aided and abetted the allegedbreaches of fiduciary duties by CuraGen’s directors.

 

 On July 21, 2009, the attorneys for the parties in the twoactions executed a memorandum of understanding (the “MOU”) pursuant to whichsuch actions will be dismissed with prejudice, subject to final court approvalof the settlement in the MOU. CuraGen agreed to make certain revisions to thejoint proxy statement/prospectus (which was prepared in connection with theapproval by CuraGen’s stockholders of the merger and by Celldex’s stockholdersof the stock issued to the former stockholders of CuraGen in the merger) aspart of the agreement among the parties to settle the actions and agreed to payattorneys’ fees and expenses as awarded by the court, expected to be $0.3million. The settlement of the actions, subject to court approval, will resultin a dismissal of all merger-related claims against CuraGen’s former board ofdirectors, CuraGen and Celldex. The MOU resolves the allegations by theplaintiffs against the defendants in connection with the proposed acquisition,and includes no admission of wrongdoing.  The settlement outlined in theMOU remains subject to, among other things, (i) drafting and execution ofa formal stipulation of settlement and such other documentation as may berequired to obtain final court approval of the settlement, (ii) finalcourt approval of the settlement and entry of a final order and judgment by thecourt providing for such release language as is contained in the settlementdocuments, and (iii) the entry of orders dismissing the actions withprejudice on the merits.  On August 27, 2009, a stipulation of settlementwas submitted to the court for the action captioned Cheryl Smith v. CuraGenCorporation, et al, pending in the Court of Chancery of the State ofDelaware, and thereafter a fairness hearing was set for November 9, 2009where the parties will seek approval of their settlement of the DelawareAction.

 

At September 30,2009, the Company had accrued $0.3 million related to the MOU.

 

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**CURAGENCORPORATION**

 

**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

*Our management’s discussion andanalysis of our financial condition and results of operations include theidentification of certain trends and other statements that may predict oranticipate future business or financial results that are subject to importantfactors that could cause our actual results to differ materially from thoseindicated. See Part II, Item 1A, “Risk Factors.”*

 

**Overview**

 

We are abiopharmaceutical development company dedicated to improving the lives ofpatients by developing novel therapeutics for the treatment of cancer. We havetaken a systematic approach to identifying and validating promisingtherapeutics and are now focused on developing and advancing a potential drugcandidate through clinical development. We are currently focusing the majority of our human and financial resourceson our oncology therapeutic area.

 

Royalties or otherrevenue generated from commercial sales of products developed through theapplication of our technologies or expertise is not expected for several years,if at all. We expect that our revenue or income sources for at least the nextseveral years may be limited to potential milestones and other potentialpayments related to partnering CR011-vcMMAE and interest income.

 

We expect to continueincurring expenses relating to our research and development efforts as we focuson clinical trials required for the development of CR011-vcMMAE. Conductingclinical trials is a lengthy, time-consuming and expensive process and weexpect to incur continued losses over the next several years.

 

**Significant Recent Developments**

 

In connection with the Celldex Merger, effective October 1,2009, Celldex (i) issued 15,722,713 shares of Celldex common stock, or0.2739 shares, in exchange for each share of outstanding CuraGen common stock,plus cash in lieu of fractional shares (the “Celldex Exchange Ratio”), (ii) assumedall of the CuraGen stock options outstanding under the CuraGen 2007 Stock Plan,and (iii) assumed CuraGen’s $12.5 million remaining obligation for its 4%convertible subordinated debt due in February 2011 (the “CuraGen Debt”).  The CuraGen 2007 Options and CuraGen Debtconvert into shares of the Celldex’s common stock after applying the CelldexExchange Ratio.

 

In July 2009, werepurchased a total of $1.6 million of our 4% convertible subordinateddebentures due February 2011, for an aggregate purchase price of $1.4million, reflecting an aggregate discount from the face value of such notes ofapproximately 15% and resulting in a $0.2 million gain.

 

**CR011-vcMMAE for theTreatment of Cancer**

 

CR011-vcMMAE is an antibody-drug conjugate, orADC, comprised of CR011, a fully-human monoclonal antibody resulting from ourcollaboration with Amgen Fremont linked to monomethylauristatin E, or vcMMAE,using technology licensed from Seattle Genetics. CR011 targets glycoproteinNMB, or GPNMB, a protein located on the surface of cancer cells includingmelanoma and breast cancer. After CR011-vcMMAE binds to the target protein, theADC is transported inside the cancer cell where vcMMAE is cleaved from theantibody and inhibits tubulin polymerization leading to cell death.

 

*CR011-vcMMAE ClinicalDevelopment Program*

 

In June 2006 we initiated a Phase I/IIopen-label, multi-center, dose escalation study evaluating the safety,tolerability and pharmacokinetics of CR011-vcMMAE for patients withunresectable Stage III or Stage IV melanoma who have failed no more than oneprior line of cytotoxic therapy. We are currently evaluating CR011-vcMMAE inclinical trials for the treatment of patients with advanced melanoma and forthe treatment of patients with metastatic breast cancer, as further describedin the table below.

 

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| **Indication**      | ** ** | **Phase** | ** ** | **Regimen**                                                                                | ** ** | **Initiation of Patient********Enrollment** | ** ** | **Status**                                                                     |
|---------------------|------------|-----------|------------|--------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------------------------------------|
| Metastatic melanoma |       | I/II      |       | 0.03 to 2.63 mg/kg  every three weeks in Phase I; 1.88 mg/kg every three weeks in Phase II |       | June 2006                                        |       | Enrollment completed.                                                          |
|                |       |      |       |                                                                                       |       |                                                  |       |                                                                           |
|                |       |      |       | Weekly and two out of  every three week regimens                       |       | Sept 2007                                             |       | Enrollment completed.                                                          |
|                |       |      |       |                                                                                       |       |                                                  |       |                                                                           |
| Breast cancer       |       | I/II      |       | Every three weeks  regimen                                                                 |       | June 2008                                        |       | Enrollment completed. Updated results anticipated in  the second half of 2009. |

 

*Phase II Trial Results for theTreatment of Metastatic Melanoma Cancer*

 

In June 2006, we initiated a Phase I/IIopen-label, multi-center, dose escalation study evaluating the safety,tolerability and pharmacokinetics of CR011-vcMMAE for patients withunresectable Stage III or Stage IV melanoma who have failed no more than oneprior line of cytotoxic therapy.

 

During Phase I, doses of CR011-vcMMAE between 0.03mg/kg to 2.63 mg/kg were evaluated and generally well tolerated, with rash andneutropenia emerging at higher doses. The maximum tolerated dose, or MTD, wasdetermined to be 1.88 mg/kg administered intravenously (IV) once everythree weeks.

 

On June 1, 2009, we announced the results fromthis ongoing study at the 2009 American Society of Clinical Oncology, or ASCO,Annual Meeting. Thirty six patients were treated in the Phase II portion of thestudy.  Of the patients enrolled, 94% had Stage IV disease of which two-thirdswere classified as M1c, thepoorest risk group.

 

The study successfully met its primary activityendpoint, with 5 objective responses (1 unconfirmed) observed in 34 evaluablepatients, and median duration of response of 5.3 months.  The median overall progression-free survival,or PFS, was 4.4 months. Tumor shrinkage was observed in 58% of patients, and 20patients had best response of stable disease. Dermatologic adverse eventsconsisting of rash, alopecia, and pruritus were the most common toxicities inthis study. Other adverse events included fatigue, diarrhea, musculoskeletalpain, anorexia and nausea.  Grade 3 or 4neutropenia was observed in 5 patients. The absence of rash in the first cycleof treatment predicted a worse PFS. Additionally, in a subset of patients with tumor biopsies, high levelsof tumor expression of GPNMB appeared to correlate with favorable outcome.

 

Enrollment has been completed in the Phase I portionof the melanoma trial to evaluate more frequent dosing schedules ofCR011-vcMMAE, including a weekly and a two out of every three-week regimen, toexplore if more frequent administration can provide additional activity inpatients with metastatic melanoma. Preliminary data from 28 patients were presented at ASCO.  At that time, a dose of 1.0 mg/kg given onceevery week had been identified as the MTD in a weekly schedule, and a dose of1.5mg/kg was being explored in the two out of three week schedule. Althoughmedian duration of follow-up was only 6 weeks, objective responses had thus farbeen observed in 3 of 11 evaluable patients treated with weekly CR011-vcMMAE (1confirmed) and 1 confirmed response in 8 evaluable patients treated withCR011-vcMMAE two out of every three weeks. We anticipate presenting updated results from the more frequent dosingregimens during the first half of 2010.

 

*PhaseII Trial Results for the Treatment of Breast Cancer*

 

On June 25, 2008, we announced the initiation ofpatient dosing in an open-label, multi-center Phase II study of CR011-vcMMAEadministered intravenously once every three weeks to patients with locallyadvanced or metastatic breast cancer who have received prior therapy. The studybegan with a bridging phase to confirm the MTD and has expanded into a Phase IIopen-label, multi-center study. Preliminary data were presented at ASCO 2009 on18 evaluable patients treated at doses of 1.0 — 1.88mg/kg from the Phase Iportion and the initial portion of the Phase II study. Selection for enrollmentwas not based on expression of GPNMB in patients’ tumors. The median number ofprior chemotherapy regimens for metastatic disease was 4 (range 2-11). Triplenegative disease (ER/PR/Her-2 negative) was present in 44% of patients. Partialresponses were seen in 3 patients (1 confirmed), including a patient withtriple negative disease. Fifty percent (50%) of patients showed tumorshrinkage. Toxicities were similar to those observed in previous studies with CR011-vcMMAE;the most common adverse events were rash, alopecia, and fatigue.

 

On June 17, 2009, we announced that the Phase IIstudy of CR011-vcMMAE in breast cancer has met the efficacy criteria foradvancement to the second stage of enrollment. Fifteen patients had beenenrolled in the Phase II portion of the study at a dose of 1.88mg/kg given onceevery three weeks.  Two of the first fourevaluable Phase II patients were progression-free at 12 weeks, therefore, as partof the Simon 2-Stage design, the Phase II trial would advance to the secondstage and enroll a total of approximately 25 patients.

 

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Enrollment has now been completed in the trial and weanticipate presenting updated results from this study during the second half of2009.

 

**Critical Accounting Policiesand Use of Estimates**

 

Our discussion and analysis of our financialcondition and results of operations are based upon our condensed financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States. The preparation of these financialstatements requires us to make estimates and judgments that affect the reportedamount of assets and liabilities, revenues and expenses. On an on-going basis,we evaluate our estimates, including those related to investment valuation,accrued expenses, and stock based compensation. We base our estimates on historicalexperience and on various other assumptions that we believe to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. Our significant accountingpolicies are more fully described in Note 1 to our consolidated financialstatements included in our Annual Report on Form 10-K for the year ended December 31,2008.

 

**Results of Operations**

 

*Thefollowing table sets forth a comparison of the components of our net loss forthe three months ended September 30, 2009 and 2008 (in millions):*

 
| ** **                          | ** ** | **Three Months Ended September 30,** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | **2009**                                  | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Research and development expenses   |       | $                                         | (2.2       | ) | $ | (3.4 | ) | (1.2 | ) | (35 | )% |
| General and administrative expenses |       | (3.3                                      | )          | (1.1 | ) | 2.2 |   | 200 | % |
| Interest income                     |       | 0.1                                       |       | 0.7 |   | (0.6 | ) | (86 | )% |
| Interest expense                    |       | (0.2                                      | )          | (0.2 | ) | — |   | — |   |
| Gain on extinguishment of debt      |       | 0.2                                       |       | — |   | 0.2 |   | 100 | % |
| Net loss                            |       | $                                         | (5.4       | ) | $ | (4.0 | ) |   |   |   |   |

 

*Thefollowing table sets forth a comparison of the components of our net(loss)/income for the nine months ended September 30, 2009 and 2008 (inmillions):*

 
| ** **                                                           | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                           | ** ** | **2009**                                 | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Collaboration revenue                                                |       | $                                        | —     |   | $ | 1.2 |   | $ | (1.2 | ) | (100 | )% |
| Research and development expenses                                    |       | (5.8                                     | )          | (12.5 | ) | (6.7 | ) | (54 | )% |
| General and administrative expenses                                  |       | (8.1                                     | )          | (4.2 | ) | 3.9 |   | 93 | % |
| Gain on sale of intangible asset                                     |       | —                                   |       | 36.4 |   | (36.4 | ) | (100 | )% |
| Interest income                                                      |       | 0.8                                      |       | 2.7 |   | (1.9 | ) | (70 | )% |
| Interest expense                                                     |       | (0.5                                     | )          | (1.5 | ) | (1.0 | ) | (67 | )% |
| Realized gain (loss) on sale of available-for-sale  investments, net |       | —                                   |       | (0.2 | ) | (0.2 | ) | (100 | )% |
| Gain on extinguishment of debt                                       |       | 1.2                                      |       | 7.0 |   | (5.8 | ) | (83 | )% |
| Income tax benefit (provision)                                       |       | 0.8                                      |       | (0.4 | ) | 1.2 |   | 300 | % |
| Net (loss) income                                                    |       | $                                        | (11.6      | ) | $ | 28.5 |   |   |   |   |   |
|                                                                      |            |                                          |            |  |  |  |  |  |  |  |  |  |

 

***Collaborationrevenue.    ***Thedecrease in collaboration revenue for the nine months ended September 30,2009, as compared to the same period in 2008 was due to the recognition of $1.2million of the $1.3 million received during 2006 from TopoTarget’s licensingagreement with an unrelated third party.

 

***Research anddevelopment expenses.    ***Researchand development expenses consist primarily of: contractual and manufacturingcosts; salary and benefits; license fees and milestone payments; drug supply;and allocated facility costs. Our research and development efforts areconcentrated solely on clinical trials. We budget and monitor our research anddevelopment costs by expense category, rather than by project, because thesecosts often benefit multiple projects and/or our technology platform as awhole.

 

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Below is a summary thatreconciles our total research and development expenses for the three and ninemonth periods ended September 30, 2009 and 2008 by the major categories *(in millions):*

 
| ** **                              | ** ** | **Three Months Ended September 30,** | ** ** |
|-----------------------------------------|------------|-------------------------------------------|------------|
| ** **                              | ** ** | **2009**                                  | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Contractual and manufacturing costs     |       | $                                         | 0.9        |   | $ | 1.5 |   | $ | (0.6 | ) | (40 | )% |
| Salary and benefits                     |       | 0.5                                       |       | 1.1 |   | (0.6 | ) | (55 | )% |
| Allocated facility costs                |       | 0.8                                       |       | 0.8 |   | — |   | — |   |
| Total research and development expenses |       | $                                         | 2.2        |   | $ | 3.4 |   |   |   |   |   |
|                                         |            |                                           |            |  |  |  |  |  |  |  |  |  |

 
| ** **                              | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|
| ** **                              | ** ** | **2009**                                 | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Contractual and manufacturing costs     |       | $                                        | 2.5        |   | $ | 5.8 |   | $ | (3.3 | ) | (57 | )% |
| Salary and benefits                     |       | 1.6                                      |       | 3.3 |   | (1.7 | ) | (52 | )% |
| License fee and milestone payments      |       | 0.1                                      |       | 1.6 |   | (1.5 | ) | (94 | )% |
| Allocated facility costs                |       | 1.6                                      |       | 1.8 |   | (0.2 | ) | (11 | )% |
| Total research and development expenses |       | $                                        | 5.8        |   | $ | 12.5 |   |   |   |   |   |
|                                         |            |                                          |            |  |  |  |  |  |  |  |  |  |

 

The decrease in our research and developmentexpenses for the three and nine months ended September 30, 2009 ascompared to the same period in 2008 was primarily due to the transfer agreemententered into in the second quarter 2008 with TopoTarget which effectively soldour rights to belinostat, a Phase I/II HDAC inhibitor and any other HDACinhibitors, such that we would no longer incur additional clinical trialexpenses. We also incurred a decrease in salary and benefits caused by areduction in workforce in the fourth quarter 2008, and a decrease in allocatedfacility costs due to reducing our office space. We had a decrease in licensefees and milestone payments for the nine months ended September 30, 2009as compared to the same period in 2008, due to milestone expenses incurredrelating to our collaboration agreements with Amgen Fremont and SeattleGenetics for advancing CR011-vcMMAE to Phase II in the first quarter of 2008.

 

As soon as we advance a potential clinicalcandidate into clinical trials, we begin to track research and developmentexpenses associated with that potential clinical candidate.  The following table shows the cumulative researchand development expenses by category for our remaining active clinical programCR011-vcMMAE *(in millions):*

 
| ** **                                                                    | ** ** | **Clinical Development Costs  CR011-vcMMAE  Metastatic melanoma/Breast cancer** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **Three Months  Ended  September 30,  2009**                               | ** ** | **Three Months  Ended  September 30,  2008** | ** ** |
| Salary and benefits                                                           |       | $                                                                               | 0.6        |   | $ | 1.0 |   |
| Contractual costs, milestones and manufacturing and  allocated facility costs |       | 1.5                                                                             |       | 1.1 |   |
| Total direct costs                                                            |       | $                                                                               | 2.1        |   | $ | 2.1 |   |

 
| ** **                                                                    | ** ** | **Nine Months  Ended  September 30,  2009** | ** ** | **Nine Months  Ended  September 30,  2008** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| Salary and benefits                                                           |       | $                                                | 1.7        |                                             | $          | 2.0 |   |
| Contractual costs, milestones and manufacturing and  allocated facility costs |       | 3.6                                              |       | 3.7                                              |       |
| Total direct costs                                                            |       | $                                                | 5.3        |                                             | $          | 5.7 |   |

 

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| ** **                                                                    | ** ** | **Cumulative as of********September 30,  2009** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **Since  Commencement  of Phase I**                  | ** ** |
| Salary and benefits                                                           |       | $                                                    | 5.8        |   |
| Contractual costs, milestones and manufacturing and  allocated facility costs |       | 10.1                                                 |       |
| Total direct costs                                                            |       | $                                                    | 15.9       |   |

 

During the three and nine month periods ended September 30,2008 we had two active programs: CR011-vcMMAE and belinostat, and one inactiveprogram, velafermin.  On April 21,2008, the Company sold the ownership and development rights of belinostat toTopoTarget and on October 11, 2007 the Company discontinued thedevelopment of velafermin, although the Company continued to incur costs forvelafermin related to protocol specified safety monitoring during 2008.  Cumulative expenses since the commencement ofPhase I for belinostat were $48.2 million and for velafermin were $51.6 millionas of December 31, 2008 and we do not expect to incur any additional costswith these programs in 2009.Currently, our potential pharmaceutical productsrequire significant research and development efforts and preclinical testing,and will require extensive evaluation in clinical trials prior to submitting anapplication to regulatory agencies for their commercial use. Although we areconducting human studies with respect to CR011-vcMMAE, we may not be successfulin developing or commercializing this or other products. Our product candidatesare subject to the risks of failure inherent in the development andcommercialization of pharmaceutical products and we cannot currently providereliable estimates as to when, if ever, our product candidates will generaterevenue and cash flows.

 

***General and administrative expenses.****    *Theincrease in general and administrative expenses for the three and nine monthsended September 30, 2009, as compared to same period in 2008, was due tolegal, audit and advisor fees incurred in conjunction with the Celldex Merger.

 

***Gain on saleof intangible asset*****.**    Thegain on sale of intangible asset of $36.4 million for the nine month period endedSeptember 30, 2008 was a result of the sale of belinostat to TopoTarget inApril 2008, which provided us with net cash proceeds of $24.6 million, and5 million shares of TopoTarget stock valued at $11.8 million on theclosing date, April 21, 2008. These shares were liquidated in June 2008for cash proceeds of $11.8 million.

 

***Interestincome, net.***    Interestincome for the three and nine months ended September 30, 2009, decreasedas compared to the three months and nine months ended September 30, 2008due to lower interest rates and a reduction in our cash and investmentportfolio balance. Our lower cash and investment balance was due to the 2009repurchases of $5.2 million of our 4% convertible subordinated debentures toretire $6.4 million of debt in addition to debt repurchases completed in thesecond quarter of 2008 and cash used for operations during 2009. We earned anaverage yield of 0.8% during the third quarter of 2009 as compared to 3.4% inthe third quarter of 2008, and earned an average yield of 1.5% during the firstnine months of 2009 as compared to 3.6% during the same period in 2008.

 

***Interestexpense.***    Interestexpense for the three and nine months ended September 30, 2009 decreasedas compared to the three and nine months ended September 30, 2008primarily due to the repurchases of our 4% convertible subordinated debenturesdue February 2011. The repurchases consisted of $50.9 million in May 2008and $6.4 million in 2009.

 

***Realized(loss) gain on sale of available-for-sale investments, net*****.**    Duringthe nine months ended September 30, 2009 we realized a gain on the sale ofavailable-for sale investments of $0.1 million. The gain was due to the sale in the first quarter of 2009 of ourasset-backed securities and our corporate and municipal bonds.

 

***Gain on extinguishment of debt*****.**    The gain onextinguishment of debt for the three and nine months ended September 30,2009 was due to the repurchase of CuraGen Debt. In February 2009 and July 2009, we repurchased a total of $4.8million and $1.6 million of CuraGen debt, for an aggregate purchase price of$3.8 million and $1.4 million, reflecting an aggregate discount from the facevalue of such notes of approximately 21% and 15% and resulting in a gain of$1.0 million and $0.2 million, respectively.

 

***Income taxbenefit (provision).***   Werecorded an income tax benefit of $0.7 million during the nine months ended September 30,2009 as a result of the expiration of the State of Connecticut statute oflimitations, as it relates to the Year 2004 income tax benefit. Connecticutlegislation allows companies to obtain cash refunds from the State of 

 

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Connecticutat a rate of 65% of their annual research and development expense credit, inexchange for forgoing carryforward of the research and development credit.

 

**Liquidity and Capital Resources**

 

Since our inception, we have financed ouroperations and met our capital expenditure requirements primarily through:private placements of equity securities; convertible subordinated debtofferings; public equity offerings; sales of assets; and revenues receivedunder our collaborative research agreements. Since inception, we have not hadany off-balance sheet arrangements. To date, inflation has not had a materialeffect on our business.

 

In July 2009, werepurchased a total of $1.6 million of our 4% convertible subordinateddebentures due February 2011, for an aggregate purchase price of $1.4million, reflecting an aggregate discount from the face value of such notes ofapproximately 15% and resulting in a $0.2 million gain.

 

In February 2009, we repurchased a total of$4.8 million of our 4% convertible subordinated debentures due February 2011,for an aggregate purchase price of $3.8 million reflecting an aggregatediscount from the face value of such 2011 notes of approximately 21%, resultingin a gain of approximately $1.0 million.

 

***Cash and investments.    ***Thefollowing table depicts changes in the cash and investments for the nine monthperiods ended September 30, 2009 and 2008, using the direct method *(in millions)*:

 
| ** **                                                                      | ** ** | **Nine months ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                      | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
| Cash paid to suppliers, employees and advisors                                  |       | $                                         | (12.1      | ) | $ | (14.0 | ) |
| Restructuring charges paid                                                      |       | (0.5                                      | )          | (2.8 | ) |
| Interest income received                                                        |       | 0.7                                       |       | 2.7 |   |
| Interest expense paid                                                           |       | (0.7                                      | )          | (2.3 | ) |
| Income tax provision (paid)/received                                            |       | 0.3                                       |       | (0.3 | ) |
| Proceeds from sale of fixed assets                                              |       | —                                    |       | 0.1 |   |
| Gain on sale of intangible asset                                                |       | —                                    |       | 36.4 |   |
| Cash received from employee stock option exercises                              |       | 0.1                                       |       | — |   |
| Cash paid for extinguishment of debt                                            |       | (5.2                                      | )          | (43.2 | ) |
| Net unrealized (loss) gain on short-term  investments and marketable securities |       | (0.1                                      | )          | — |   |
| Net realized gain on short-term investments and  marketable securities          |       | 0.1                                       |       | (0.2 | ) |
| Net decrease in cash and investments                                            |       | (17.4                                     | )          | (23.6 | ) |
| Cash and investments, beginning of period                                       |       | 87.7                                      |       | 115.0 |   |
| Cash and investments, end of period                                             |       | $                                         | 70.3       |   | $ | 91.4 |   |

 

In accordance with our investment policy, we areutilizing the following investment objectives for cash and investments: (1) investmentdecisions are made with the expectation of minimum risk of principal loss, evenwith a modest penalty in yield; (2) appropriate cash balances and related short-termfunds are maintained for immediate liquidity needs, and appropriate liquidityis available for medium-term cash needs; and (3) maximum yield isachieved.

 

**Contractual Obligations**

 

Except as set forthbelow, the disclosures relating to our contractual obligations reported in ourAnnual Report on Form 10-K for the year ended December 31, 2008 whichwas filed with the SEC on March 10, 2009 have not materially changed sincewe filed that report.

 

In February 2009, werepurchased a total of $4.8 million of our 4% convertible subordinateddebentures due February 2011, for an aggregate purchase price of $3.8million, reflecting an aggregate discount from the face value of such notes ofapproximately 21% and resulting in a $1.0 million gain.

 

In July 2009, werepurchased a total of $1.6 million of our 4% convertible subordinateddebentures due February 2011, for an aggregate purchase price of $1.4million, reflecting an aggregate discount from the face value of such notes ofapproximately 15% and resulting in a $0.2 million gain.

 

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#### **Item 3. * *Quantitative and Qualitative Disclosures About Market Risk**

 

Our outstanding long-term liabilities asof September 30, 2009****consisted of$12.5 million of our 4% convertible subordinated notes due February 15,2011.  As the notes bear interest at afixed rate, our results of operations are not affected by interest ratechanges.  As of September 30,2009, the market value of our $12.5 million 4% convertiblesubordinated notes due 2011, based on quoted market prices, wasapproximately $11.5 million.

 

We review our investmentportfolio on a regular basis to determine if there is an impairment that isother than temporary.  All of ourinvestments are in an unrealized gain position as of September 30, 2009,and no adjustment of carrying values is warranted at this time.  We continue to monitor our investmentportfolio on a regular basis for any other potential impairment.

 

**Item 4.  Controls and Procedures**

 

**(a)****                                 ****Evaluation of DisclosureControls and Procedures**

 

Our management, with the participation of our chiefexecutive officer and chief financial officer, evaluated the effectiveness ofour disclosure controls and procedures as of September 30, 2009.  The term “disclosure controls and procedures,”as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended,  the “ExchangeAct”), means controls and other procedures of a company that are designed toensure that information required to be disclosed by a company in the reportsthat it files or submits under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the SEC’s rules andforms.  Disclosure controls andprocedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by a company in the reportsthat it files or submits under the Exchange Act is accumulated and communicatedto the company’s management, including its principal executive and principalfinancial officers, as appropriate to allow timely decisions regarding requireddisclosure.  Our management recognizesthat any controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving their objectives and managementnecessarily applies its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.  Basedon the evaluation of our disclosure controls and procedures as of September 30,2009, our chief executive officer and chief financial officer concluded that,as of such date, our disclosure controls and procedures were effective at thereasonable assurance level.

 

**(b)****                                 ****Changes in InternalControls**

 

No change in our internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) occurred during the fiscal quarter ended September 30, 2009that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

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##### **Part II - Other Information**

##### ** **

**Item 1.********Legal Proceedings**

 

Following theannouncement of the proposed acquisition by Celldex of CuraGen, a putativeclass action complaint, *Margaret Capps v.Timothy Shannon, et al.*, was filed in the Connecticut SuperiorCourt, Judicial District of New Haven, on June 9, 2009. A second putativeclass action complaint, *Cheryl Smith v.CuraGen Corporation, et al.*, was filed in the Court of Chancery ofthe State of Delaware on June 15, 2009. Both lawsuits purport to have beenbrought on behalf of all public stockholders of CuraGen, and name CuraGen, allof its former directors, Celldex, and Cottrell Merger Sub as defendants. Thecomplaints alleged, among other things, that the merger consideration paid toCuraGen stockholders in the merger is unfair and undervalues CuraGen. Inaddition, the complaints alleged that CuraGen’s former directors violated theirfiduciary duties by, among other things, failing to maximize stockholder valueand failing to engage in a fair sale process. The Plaintiffs in the two actionsalso sought to add claims that CuraGen’s former directors breached theirfiduciary duty of disclosure by making purportedly misleading and incompletedisclosures in the preliminary proxy statement concerning the merger. Thecomplaints also alleged that CuraGen and Celldex aided and abetted the allegedbreaches of fiduciary duties by CuraGen’s directors.

 

 On July 21, 2009, the attorneys for theparties in the two actions executed a memorandum of understanding (the “MOU”)pursuant to which such actions will be dismissed with prejudice, subject tofinal court approval of the settlement in the MOU. CuraGen agreed to makecertain revisions to the joint proxy statement/prospectus (which was preparedin connection with the approval by CuraGen’s stockholders of the merger and byCelldex’s stockholders of the stock issued to the former stockholders ofCuraGen in the merger) as part of the agreement among the parties to settle theactions and agreed to pay attorneys’ fees and expenses as awarded by the court,expected to be $0.3 million. The settlement of the actions, subject to courtapproval, will result in a dismissal of all merger-related claims againstCuraGen’s former board of directors, CuraGen and Celldex. The MOU resolves theallegations by the plaintiffs against the defendants in connection with theproposed acquisition, and includes no admission of wrongdoing.  Thesettlement outlined in the MOU remains subject to, among other things, (i) draftingand execution of a formal stipulation of settlement and such otherdocumentation as may be required to obtain final court approval of thesettlement, (ii) final court approval of the settlement and entry of afinal order and judgment by the court providing for such release language as iscontained in the settlement documents, and (iii) the entry of ordersdismissing the actions with prejudice on the merits.  On August 27,2009, a stipulation of settlement was submitted to the court for the actioncaptioned Cheryl Smith v. CuraGen Corporation, et al, pending in theCourt of Chancery of the State of Delaware, and thereafter a fairness hearingwas set for November 9, 2009 where the parties will seek approval of theirsettlement of the Delaware Action.

 

CuraGen Corporation’s former landlord filed acomplaint in the Connecticut Superior Court, Judicial District of New Haven, onSeptember 9, 2009, in case captioned *T.K.J.Associates LLC v. CuraGen Corporation*.  The plaintiff allegesthat CuraGen failed to pay rent and additional charges, and, upon vacatingpreviously leased space, failed to restore the vacated space to the conditionof initial occupancy, failed to pay utility charges, failed to remove personalproperty, and failed to comply with applicable environmental laws andregulations.  CuraGen believes that the claims made by the landlord arewithout merit and intends to defend the lawsuit vigorously.

 

**Item1A.  Risk Factors**

 

In addition to the otherinformation set forth in this report, you should carefully consider the factorsdiscussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-Kfor the year ended December 31, 2008 filed with the SEC on March 10,2009, which could materially affect our business, financial condition or futureresults. The risks described in our Annual Report on Form 10-K may not bethe only risks facing the Company. Additional risks and uncertainties notcurrently known to the Company or that the Company currently deems to beimmaterial also may materially adversely affect the Company’s business,financial condition and/or operating results.

 

There were no materialchanges to the risk factors previously disclosed in our Annual Report on Form 10-Kfiled with the SEC on March 10, 2009 or in our joint proxystatement/prospectus filed on August 28, 2009.

 

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**Item 4.****   ****Submission of Matters to a Vote of Security Holders**

 

Our Special Meeting of Stockholders was held on September 30,2009.  There were present at the SpecialMeeting, in person or by proxy, stockholders holding an aggregate of 36,687,236shares of common stock.  The results ofthe votes taken at the Special Meeting with respect to the two proposals wereas follows:

 
| **Proposal**                                                                                                                                                                                                                                                             | ** ** | **For**           | ** ** | **Against**      | ** ** | **Withheld**  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------|------------|---------------|
|                                                                                                                                                                                                                                                                     |       |              |       |             |       |          |
| To adopt the Agreement and Plan of Merger dated as of May 28,  2009, by and among CuraGen Corporation, Celldex Therapeutics, Inc. and  Cottrell Merger Sub, Inc., as such agreement may be amended from time to  time (the “merger agreement”). |       | 35,400,185 shares |       | 1,248,365 shares |       | 38,686 shares |
|                                                                                                                                                                                                                                                                     |       |              |       |             |       |          |
| To approve the adjournment of the Meeting, if necessary, to solicit  additional proxies in the event that there are insufficient votes to  constitute a quorum or approve Proposal No. 1 at the time of the  Meeting.                                               |       | 35,184,814 shares |       | 1,454,899 shares |       | 47,523 shares |

 

**Item 6.  Exhibits**

 
| Exhibit 31.1 |   | Certification by Chief  Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of  the Exchange Act, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 |
|-------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |                                                                                                                                                                                               |
| Exhibit 31.2 |   | Certification by Chief  Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of  the Exchange Act, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 |
|              |   |                                                                                                                                                                                               |
| Exhibit 32   |   | Certification by Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002          |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
| Dated: November 6,  2009 | CuraGen Corporation                                             |
|-------------------------------|-----------------------------------------------------------------|
|                          |                                                            |
|                          |                                                            |
|                          | By:                                                             | /s/ Anthony S. Marucci |
|                          | Anthony S. Marucci                                              |
|                          | President and Chief  Executive Officer                          |
|                          | (principal executive  officer of the registrant)                |
|                          |                                                            |
|                          |                                                            |
| Dated: November 6,  2009 | By:                                                             | /s/ Avery W. Catlin |
|                          | Avery W. Catlin                                                 |
|                          | Senior Vice-President  and Chief Financial Officer              |
|                          | (principal financial and accounting  officer of the registrant) |

 

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**CURAGENCORPORATION**

 

**EXHIBIT INDEX**

 
| **No.**           |   |                                                                                                                                                                                               |
|-------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |                                                                                                                                                                                               |
| Exhibit 31.1 |   | Certification by Chief  Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of  the Exchange Act, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 |
|              |   |                                                                                                                                                                                               |
| Exhibit 31.2 |   | Certification by Chief  Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of  the Exchange Act, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 |
|              |   |                                                                                                                                                                                               |
| Exhibit 32   |   | Certification by Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002          |

 

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